Lindy, a US corporation, bought inventory items from a supplier in Argentina on

Question

Lindy, a US corporation, bought inventory items from a supplier in Argentina on November 5, year 1, for 100,000 Argentine pesos, when the spot rate was $.4295. At Lindy’s December 31, year 1 year-end, the spot rate was $.4245. On January 15, year 2, Lindy bought 100,000 pesos at the spot rate of $.4345 and paid the invoice. How much should Lindy report as part of net income for year 1 and year 2 as foreign exchange transaction gain or loss? Please include detailed calculation.

Year 1                         Year 2

A. $ 500                      $(1,000)

B. $0                           $ (500)

C. $ (500)                    $0

D. $(1,000)                  $ 500

E. $500                        $0

Explanation / Answer

Therefore the correct option is option -A. The foreing currency trantraction in the book fo Lindy's. On Nov 5 1-year: Inventory 42950      Accounts payable 42950 (To record the purchase of invetory i.e. 100000 pesos x $0.4295) Gain in foreign exchange is: Accounts payable 500        Foreig exchange transaction gain 500 0.005 Working note: 500 Gain / (Loss) on foreign exchance = ($0.4295 -$0.4245)*100000 =$500 On Jan 15 2-year: Accounts payable($42,950 - $500) 42450 Foreign exchangen transaction loss ($42450 -$43450) 1000          Cash (100000*$0.4345) 43450

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.